Huawei Technologies is gradually returning to the North American market under its own brand, as well as through partnerships. The Chinese telecoms and datacoms equipment manufacturer remains chastened by its previous foray into North America, which led to a January 2003 lawsuit by Cisco that alleged unlawful copying of the IOS operating system to run on its own routers and switches.
The spat was resolved out of court 10 months later, with Shenzhen-based Huawei making changes to the code on its products and agreeing a process with Cisco to review the changes. Huawei had already renamed its operation in North America a year earlier, calling it Futurewei, and with the out-of-court settlement with Cisco, it virtually disappeared there, at least in terms of datacoms and the enterprise market.
However, it never withdrew altogether. It continued to target the carrier market. Last year it announced a deals in the optical sector with Canada’s Hibernia Alberta, and in cdma2000 cellular technology with Leap Wireless.
But it has been a fairly low-key operation compared, for instance, with Europe where its status as a supplier to BT for its 21CN next-gen network under its main brand has resulted in an altogether higher profile. Huawei has a distribution partner for its datacoms business in Europe, UK-based Zycko, though it is not considered a serious competitor by Cisco or any of the usual suspects in enterprise networking.
Now things appear to be changing sin North America. First, Futurewei has rebranded as Huawei. Its new web site launched on November 1 redirects users to the revised URL. Second, a partnership and an M&A operation should enable it to more seriously address the enterprise space, both on a global, and potentially North American, basis.
There is also the proposed acquisition of a minority stake (16.5%) in 3Com as part of a $2.2bn deal in which Bain Capital Partners is taking the ailing networking company private. The operation is complex, and might require 3Com to spin off its TippingPoint security business to receive approval by the US authorities. Even if that does happen, the responsibility for decision making at 3Com will remain with its own management team, over which Huawei will hold no legal sway.
Victor Xu, VP and MD of Huawei’s technical sales department, said this will give the company a potential portfolio covering everything from SMB to the high end. Its own networking gear targets the high end of the market, while that of Huawei-3Com, its erstwhile joint venture with 3Com acquired by the US company shortly before the deal with Bain, is aimed at the mid-to-low segment, and 3Com is all about SMB. At the very least, Huawei could resell H3C and 3Com products, and if at a later stage it decides to up its stake at 3Com, it could further increase its control of the portfolio.
In May it announced a joint venture with Symantec for its security and storage software to be offered with the hardware platforms Huawei offers in those segments. Huawei plans to contribute its licensed IP, R&D muscle and manufacturing and engineering, while Symantec will bring its IP and working capital, to the tune of $150m cash.
In security, Huawei offers firewall/VPNs, network IDS and a gateway device that carries out deep packet inspection. According to Zheng Zhibin, director of global marketing for Huawei’s security and software product line, and soon to hold the same position at the putative joint venture, assuming it receives regulatory approval, the Chinese company has already started work on the development of a unified threat management appliance.
This seems the most likely first place for Symantec’s technology to be brought to bear if the deal with Huawei gets the green light from Washington and Beijing. Symantec was offering its own U appliances until it decided to get out of the hardware business last year, shortly after which it announced an alliance with Juniper, with U development one of the strands of that deal.
Zheng said that unlike its deal with Huawei, Symantec’s collaboration with Juniper in U is not a joint venture. It has no big impact on our relationship with Symantec. The fact that with us it’s a joint venture means it’s high on the agenda of both companies, he said.
The reason it would seem logical to develop a U box with Symantec, apart from the fact that the partner already has experience in that market, is that these multi-function security devices by default need to ship with a number of security softwares that Huawei doesn’t have but Symantec does, such as content filtering, and now, since its Vontu acquisition, data leakage prevention. A DLP-only appliance might be also have potential in the market.
In storage, Huawei has the full gamut of products, from tape libraries through direct-attached and network-attached storage, as well as storage area networks (DAS, NAS, and SAN). It also offers software on top such as replication and mirroring. The tie-up with Symantec will mean a relationship with the Veritas side of the company, with its expertise in everything from backup and restore to application virtualization.
Networking gear, security, and storage are all part of what the Chinese vendor calls its datacoms product group, alongside its blade, rack, and frame server portfolio. That is the smallest of Huawei’s five groups, behind optical, fixed carrier networking, mobile network infrastructure, and terminals (handsets and data cards). It is also the only one of the five where Huawei is not selling into telecoms operators, so regardless of the geography, it will need to grow its partner channel if it is to bolster its efforts in the enterprise market.
Again, both the 3Com and Symantec deals should be of use in this context. 3Com has shrunk from being an across-the-board networking company to a strong player in SMB since the turn of the millennium, with a loyal channel that might also be interested in expanding its remit to resell Huawei kit.
On the security and storage front, Zheng said the idea is for Huawei to target its existing customer base in the service provider market with the products resulting from the Symantec joint venture. The joint venture will also build its own channel, as well as leverage the existing Symantec channel, he said.
Huawei is evidently gearing up for a push into the enterprise market, which its tie-ups with more channel-friendly partners should help it achieve. How soon it will address the North American market with the storage and security offerings it will develop with Symantec, not to mention the expanded networking portfolio resulting from its 3Com investment, remains to be seen.
To some extent, targeting markets in Europe and the developing world first with these products makes sense, in that Cisco’s hold on North America is tighter, as can be seen from HP ProCurve’s success in EMEA over the last few years, while it continues to be constrained to single-figure market share in North America. Europe, Africa, and Latin America are the low-hanging fruit in this context.
That Huawei will want to step up its efforts in North America at some point, however, is beyond a doubt. Though still privately held, it does report revenue, and rose from $3.82bn in 2004 to $8.5bn two years later, with its prediction for 2007 being around 30% growth. And since 2005, the proportion coming from outside China has outstripped its domestic revenue.
Perhaps it can achieve revenue of nearly $11bn this year, with contract orders/bookings up from the $11bn in 2006 to over $14bn, without needing to jump back into the North American market with both feet and rejoin battle with Cisco on its home turf. It will have to do so in the 2008/2009 timeframe, however, if it is to maintain its momentum and grow into a global player. Now at least it can do so with a single brand identity again.